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Last updated – August 31, 2022
I’ve shared a lot of great tips to help your kids learn spending vs. saving and even about credit and debit. There is of course, more that they need to know.
The principles are the same as with creating any budget at all. The difference is in the amount of money the make and the types of expenses they will have. These differ as your child grows.
When your teenager is first creating a budget, that may be a term that is difficult for them to really fully understand. You might call it a Spending Plan instead. By calling it something other than a budget, it can make it take a positive stand. Now, your teen knows how they get to spend their money instead of a piece of paper telling them what to do. Spending Plan is much more positive than budget.
WHY THEY NEED A BUDGET
There are lot of principles your teen needs to learn when it comes to finances. Their budget, or spending plan, helps set them up for success.
The budget is their roadmap to financial health. Just like they see a doctor and dentist to make sure that they are physically healthy, their budget does the same for their finances.
Help them plan for the unexpected. What will they do if their car breaks down? They need to learn how to be prepared for the curve balls life will certainly throw their way.
How to spend wisely. When spending is documented, it gives teens a better view of where they spend money. They can easily identify the areas where they are spending too much money. A budget allows them to see if they are spending more than they are making and then make adjustments according.y.
Plan ahead. There are expenses which come up only once or twice a year. For example, college books are purchased only a couple of times a year. Paying for these needs to be budgeted all year long. This way, when it is time to buy them, the money is set aside.
Develop a healthy relationship with money. If you look your own views of money, there may be things you do not want your children to do. You might be obsessed with it or fear it. Whatever your views, you want to make sure your teen has a healthy relationship with his or her money.
HOW TO GET STARTED
Making a budget or spending plan is relatively straight forward. Their budget will be a projection of the income they will receive and the expenses they will have. They will be able to use this budget to plan ahead and know which expenses they need to cover each and every month.
To being, you can use a paper and pencil. You can also download our free Teen Budget Worksheet if you would like. You might even want to use a spreadsheet. Any way will work, as long as it is something your teen feel comfortable using.
Have him or her look back at the past 2 – 3 months of income. This will help them determine how much income to include on the budget. The amount to put on the form will be the monthly average.
For example, if payday happens every 2 weeks, total up 6 – 7 paychecks and divide it by 3. That will provide you with the average income every month. This will be recorded on the budget as income.
Make sure all sources of income are included in this total. Some to consider include:
Allowance
Wages
Gifts
Interest/Dividends
Tips
Bonus
Next, have your teen look over the past 3 months of spending. Add up all of the various amounts paid and divide by 3. This will be the average amount for each expense.
CATEGORIES FOR THE BUDGET
A teen’s budget will look much differently than one for an adult. The categories will be different than those you have on your own, as expenses change as you take on more responsibilities. If you are using our free teen budget worksheet, then you will see many categories are already included for you.
If you wish to make your own budget, you can do so, make sure that
The average family carries a lot of financial stress. Most people have student loans, credit card debt, a mortgage, car loans, and sometimes even other forms of debt.
However, not many people have a budget.
According to a survey done by Gallup, 68% of households in the U.S. do not prepare a budget.
I believe budgets are extremely important and nearly everyone should have one. Rich, poor, middle-class, whatever you are, a budget will likely help improve your financial situation.
Some people think budgets are only for people living paycheck to paycheck, or those with no money.
WRONG!
Budgets are for everyone.
Yes, that means no matter how much money you make, you should probably have a budget. I recently read something that said couples who make $50,000 a month, on average, only save 4% of their income. FOUR PERCENT on a $50,000 monthly income? The majority of that monthly income went towards clothing, food, cars, and homes. I can’t even imagine how someone could blow through so much money each month.
This just proves my point, more people need a budget.
Budgeting may not be the most fun thing in the world, but it needs to be done. Budgeting can help you take control of your financial life, which can help reduce stress and let you reach your dreams.
Other budgeting-related articles you need to read:
Below are my tips on how to make a budget and creating a budget.
The positives of creating a budget.
Budgets help people manage their money better. It’s that simple.
Budgets are great, because they keep you mindful of your income and expenses. With a monthly budget, you will know exactly how much you can spend in a category each month, how much you have to work with, what spending areas need to be evaluated, among other things.
Budgets have helped people reach their goals, pay off debt, make more money, retire, and more.
Should a budget be electronic or on a piece of paper?
Everyone has a preference, so this depends on what will work best for you.
Pencil and paper can be great, but an electronic version (such as a spreadsheet, Mint, or Personal Capital) can help you easily make changes.
I suggest choosing whatever you are most comfortable with. It doesn’t matter how you keep your budget; it’s just important that you stick to it.
Side note: I recommend you check out Personal Capital. Personal Capital is similar to Mint.com, but much better. Personal Capital allows you to aggregate your financial accounts to easily see your financial situation. You can connect accounts; such as, your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more. And it’s FREE.
You MUST track your income and spending.
What you want is to create a realistic budget. To show you where your money is coming from and where it is going, you need to gather all of your receipts, bank and credit card transactions, and so on.
Or, you could even take it a step further by tracking everything for the next month or two, this way you know you’re not missing any expenses. This means recording every single transaction with a note that tells you exactly what you bought (if a receipt is not itemized). Then, at the end of the month, you can evaluate your spending.
After one month of closely tracking your spending, I’m sure you’ll be shocked by your results. This is the best way to create a realistic budget, as you will truly see where your money is going, and this will help show you how much should be dedicated towards each category in your budget.
Plus, the shock from seeing exactly where your money is going will encourage you to be wiser with your spending.
Budget category: Income.
For the income part of your budget, it can be from varying sources. You can include income from your day job, rental properties, side jobs, passive income sources, and so on.
One common mistake is that many don’t realize their income can drastically fluctuate from month to month, even when you work the same hours every month or if you are paid salary. Due to this, you will want to be mindful of whether you are paid twice a month, every two weeks, once a week, etc. The difference of when you are paid can change the amount you make each month. Budgeting with a fluctuating income can be difficult, and in a future blog post I will go over it in more detail.
Also, I don’t think bonuses should be included in a person’s budget. Including them in your budget is not usually the best thing to do unless you are 100% certain you are receiving the bonus. I have heard of far too many people who have counted on bonuses only to be let down when it was less than anticipated. Your budget should be realistic, not a fairytale.
Related:
Budget category: Expenses.
Have you ever truly totaled your expenses?
When making a budget, many people only estimate their expenses. However, you actually should be taking your realistic expenses and putting them in your budget as your estimations may be way off.
Here are expenses you may include when creating a budget:
Home – House payment, rent, maintenance, utilities, insurance, property taxes, etc.
Car – This includes all car expenses such as your monthly car payment, gas, maintenance, insurance, license plate fees, and so on.
Television, cable, Netflix, Hulu, etc.
Cell phone.
Internet.
Food – This includes all groceries, eating out, snacks, etc. Seriously, sit down one day and add up your food expenses for the month before.
Clothing.
Entertainment – Entertainment can include many things, such as going to the movies, going out for drinks, concert tickets, sports, and so on.
Charity – If you regularly donate to charity, then this should be an area you budget for.
Savings funds – This can be for your retirement fund, wedding, travel, etc.
Taxes – If you are self-employed, then taxes will make up a large part of your budget.
Health insurance.
Miscellaneous – Pet expenses, fees, childcare, school, gifts, etc.
Related posts on creating a budget:
Keep your loved ones involved when creating a budget.
Even if only one person manages the family’s finances, the other person in the relationship should, at least, have somewhat of a clue. Conducting regular family money meetings is crucial to having a successful budget and meeting financial goals.
A budget doesn’t work if the other person doesn’t even know it exists!
Make changes when/if needed when creating a budget.
I recommend going over your budget on a regular basis. This may mean once a week, once a month, or something else. Do what feels right for you and what you think your situation calls for.
Many things can change in your budget. Your income may change, your expenses may change, or your goals may change. When something changes, you should adjust your budget to reflect that.
You may have noticed a recurring theme in this budget post, that you should be realistic about everything. Be realistic about what you make, what you spend, and if things need to be changed.
Do you believe in the power of creating a budget? Why or why not?
INSIDE: Need help knowing how to budget? This step-by-step guide will help you create a budget that actually works. Includes free printable budget spreadsheet template!
This post may contain affiliate links. That means if you click and buy, we may receive a small commission. Please see our full disclosure policy for details.
When you’re trying to pay off credit card debt or save money, you’ll hear it time and again: “You need a budget.” But if you’ve never created a budget, the mere thought may make you want to run and hide. Making a spending plan that works is not hard, however, if you have someone to help you.
If you’re ready, I can help. Below you’ll find step-by-step instructions to follow to create your budget, whether you’re a beginner or have budgeted in the past.
You can use a pen and paper with our printable form or software for online budgeting.
Improving your money management skills doesn’t just mean spending less. It also means learning about your spending habits and making changes.
A few tweaks may help you pay off your debt and reach long term goals, such as saving for retirement.
MY BUDGET JOURNEY
I know it can be terrifying to really look at how you spend your money. Trust me, I’ve been in your shoes. But I’ve learned that the things that were the most challenging in my life have led to the biggest rewards.
Declaring bankruptcy was a low point for me. But it also taught me many valuable lessons about personal finance. Most importantly, I learned why I must have a budget.
My husband and I used to have a “bare bones budget.” Except it wasn’t, really. Rather, it was a piece of paper where I’d write down who I had to pay every month, so I didn’t forget.
When we began our journey to become debt-free, we had to look at all aspects of our finances. One thing we did was sit down together to create a budget.
Seeing our expenses and income in writing for the first time still sticks with me. I remember being in tears. It was shocking to see that we had not been in better control of our money.
Creating a budget made us acknowledge where we were, and we realized that we didn’t like what we saw. It instantly provided us with a goal: We wanted to make positive changes and get out of debt. It took time, but we did achieve our goal (and that was one of the best moments of my life).
I am going to be blunt here. Creating your first budget and managing your money with it will bring significant challenges your way.
But I can guarantee that it will be worth it in the end. Just wait until you can finally control where your money goes instead of the other way around. It is liberating.
Before we begin, you can download our free budget form by clicking on the pink box below.
If you want something more high-tech, I recommend You Need A Budget (YNAB) or EveryDollar. These are apps I’ve tested and reviewed. Both work very well, so I’m confident recommending them to you.
WHAT IS A BUDGET?
A budget is a plan that lists your estimated income and expenses for a specific period of time. Most people use a monthly budget period. Budgets are helpful for everyone, no matter what your financial situation is.
Tracking your spending in the past helps you predict your future cash flow so you can start saving more.
WHAT SHOULD BE INCLUDED IN A BUDGET?
It’s important to include every dollar you earn and spend when making a budget. Tracking your income is easy, but your budget should also include spending categories. Some you need to remember to use include:
Your list may include more categories or fewer. Our budget template includes categories that will cover just about anyone.
Read more: The categories you need to include in your budget
HOW TO CREATE YOUR BUDGET
Now that you have your categories, it’s time to start filling in the numbers. Follow these instructions to prepare your budget.
Step 1: Gather Necessary Papers
Before you begin, be sure you have all the things you’ll need. These include (but are not limited to):
Bank statements, including debit card payments
Pay stubs
Credit card statements
Utility bills
Monthly bills from various stores
Personal/vehicle loan information
Step 2: Calculate Your Income
Next, look at your pay stub(s). Your budget should reflect your monthly income. If your paychecks come more frequently than once a month, some simple calculations are necessary to come up with an accurate monthly income.
Here are some formulas to help you:
If you’re paid biweekly (i.e., every other Friday), add four pay stubs and divide by two to get your average monthly income.
For monthly pay, you can use the income you see if the amount listed for each pay period is the same. Otherwise, add three or four months’ worth of income and divide by the same number of months.
If you’re paid weekly, take the total of four income periods.
When you’re paid hourly or on commission (i.e., your income fluctuates), add your last four months of salary and divide by four to reach an average. If your income varies frequently, you’ll need to adjust your budget more often than someone with a regular income. You may also want to follow our tips for creating a budget with irregular income.
Step 3: Determine Fixed Expenses
You must make certain payments, such as your mortgage or rent, insurance premiums and car payments, on a regular basis. These recurring expenses are usually a fixed amount.
If your bill varies slightly each month (for instance, if your utilities aren’t on a budget billing system), take the past three months’ worth of statements and average them to get your estimated payment.
You can use a spending form to figure out the exact amounts to include in your budget. For example, say your October gas bill is $45.79, your November bill is $52.95, and your December bill is $49.22.
Add those three numbers and divide by three to reach your average (in this case, $49.32). I recommend you look at the months when your utility bills are the highest. For instance, you may use more gas or oil in the winter, so use those months as the basis for your budget.
One of the most important rules of personal finance is to pay yourself first. Do this by adding categories for saving. You need to save for a rainy day as well as for long term goals, such as college or retirement.
You can set up automatic transfers each month from your checking account to a savings account for your emergency fund (aim to build up at least three months’ worth of living expenses). If you have a retirement plan at work, such as a 401(k), your money is automatically withdrawn from each paycheck before you get it.
Step 4: Calculate Discretionary Expenses
Your discretionary expenses include those that vary more, such as food, gasoline and clothes. Treat them the same way you treated the gas bills described in step 3. Make sure you take the average of three months’ spending to get the figures to add to your budget.
Be sure to include occasional expenses, such as car repairs and maintenance. The goal is to pay these bills with your regular income instead of running up credit card bills.
Step 5: Fill in the Numbers
Transfer the figures you’ve calculated above to the appropriate spots on the budget form or spreadsheet. Put your monthly income at the top, followed by the amounts for each expense category.
The categories listed on our form are a guide for tracking your spending. You can add categories that aren’t included or ignore the categories you don’t need.
Add all your income and all your expenses. Then subtract your expenses from your income. The result should be zero. If it’s not, then figure out the changes you need to make.
If your total is a negative number: You’re spending more than you earn. Reduce your spending until the total reaches zero.
If your total is a positive number: You haven’t spent everything you make. Either increase your debt payments or your savings.
FINE-TUNE YOUR BUDGET
After you complete your budget for the first time, you may feel discouraged. As mentioned above, it happened to us. But once we started to rework the numbers, I began to feel better. I began to feel like I could live with a budget. It was tough, but nothing in life worth having is easy!
To balance your budget, first look at your fixed expenses. One I always like to mention is cable. We found out we were paying way too much and found a way to cut the expense in half. (As much as we would like to cut the cord entirely, we’re not yet there.)
Perhaps you could do the same and sign up for a lower-cost cable plan to free up some income. There are many other ways to reduce your monthly expenses, such as reshopping your insurance or refinancing your mortgage.
Once you’ve cut back your fixed expenses, it’s time to look at your discretionary spending. Perhaps you’re eating out a bit too much, so your budget takes a hit. You may even be overspending on shoes. These are areas where you might need to scale back to balance your budget.
Making these decisions isn’t fun, but consider what is more important: paying off debt or buying a bigger television. These are choices only you can make. But if you’re willing to scale back now and pay off debt, it will be worth it when you can buy that new TV or those new shoes without guilt!
If you’ve scaled back on everything you can and your budget still doesn’t balance, make some calls to your debtors. Ask for a reduced interest rate or a lower minimum payment on your credit cards. You never know what they will accept until you make those phone calls.
My husband and I wanted to get out of debt, so we decided that we wouldn’t eat out as often. For more than two years, we ate dinner out no more than 10 to 20 times a year. We saved a lot of money, which we used to pay off debt. It was challenging, but the result was well worth the temporary sacrifice.
WHAT TO DO ONCE YOU HAVE A BUDGET
First of all – congrats! You now have a budget you can use. You should revisit and update your budget at the end of each month.
After a few months, you probably won’t need to make any changes. But if you get a raise, have an added expense or finally pay off your car, that will require a shift in your budget numbers. Remember that your budget must always end in zero!
Creating a budget isn’t easy, but once you have one set up and continue to refer to it, it will pay off. You’ll find it helps because you are now telling your money where you want it to go rather than it telling you where it is going each month. Financial control is a fantastic feeling.
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When you are trying to tighten down the hatches on your spending, you are doing everything possible to stick to your budget.
You are determined to stick to your budget this time around. But, you always hear that budgeting can be hard.
Well, here are some quick budgeting tips that will make sure to stick to your budget.
As most new budgeters learn, they struggle to stick to a budget for their monthly expenses. It is a natural process everyone goes through.
Budget, if you are looking for an easy button, then learn which payment type is best if you are trying to stick to a budget.
Especially if you spend a lot of time on social media, studies have shown you are more likely to overspend. So, you must learn which payment type will have you stick to a budget.
Then, you may be wondering and wanting help deciding which payment type is best for you.
The Optimal Solution Payment Type Solution
The most efficient payment type is something that is instantaneous and there are no fees associated with the transaction.
Cash is the most efficient payment type: Cash payments are usually the most efficient and convenient way to pay for goods or services.
Credit cards can be a less favorable option: Credit cards tend to have high-interest rates and can lead to financial disaster if used irresponsibly.
Debit cards are a great way to keep your spending within your budget: Debit cards should be considered a top priority for budgeting because they keep you within your spending limits.
Developing a budget will help you avoid financial disaster: A budget helps you stay organized and make informed decisions about which payment method works best for you.
Today, there are so many options on which payment type to use in today’s online world.
1. Cash
Cash is a payment type that can be used to reduce debt spending. It is versatile and can be used for a variety of expenses, such as groceries, medical bills, and gym memberships.
Cash is an excellent choice for people just starting to budget and save.
It is more restrained than credit or debit cards. The envelope method of cash budgeting can be used to train your brain to reduce spending. Cash is the most traditional payment method and has the fewest drawbacks. However, you need a safe place to store your cash, and some stores may not accept it.
Benefits of Cash:
Cash is an excellent payment type when your financial goals are to reduce debt spending.
Cash is a finite payment method that prevents you from overspending.
You have a set amount of money to spend each month, so there’s no chance of overspending.
Easy to track with the envelope method: Utilizing the envelope method ensures that you are tracking your spending (i.e groceries, gas, medical bills) and making sure that you aren’t overspending.
Cash is a quick and easy way to pay for goods and services.
No Fees. No maintenance fees or interest rates as credit cards. Cash is just plain cash – printed paper of currency.
You can avoid high fees associated with card transactions: There are no associated fees when paying with cash, making it the cheapest option overall.
Cash discounts may be available. Since you are paying with cash many small businesses offer a cash discount of 2-5%.
You can use cash at any store: No need to carry around extra cards or checks.
It’s easy to get cash: You can easily get cash and make extra cash.
There’s no need for bank account details: No need for bank account details means you’re free from identity theft risks and other inconveniences that come with having a bank account.
Cash allows you to skirt some financial regulations: Because cash payments don’t fall under the purview of many financial regulations, businesses can take advantage of loopholes in the law that allow them to charge higher interest rates on loans or engage in shady business practices. (highly recommended to stay above book)
Cons of Cash:
Possibility of losing or stolen cash: Keep your cash in a safe place!
You need a safe place to store your money: Another disadvantage of using cash is that you may need a safe place in which to keep it – some stores don’t accept it as a payment method.
Why Choose Cash?
Total control over your money, so there’s little chance of unexpectedly running out of funds.
Cash is a great way to stay on budget, as you can easily track your spending and see where you need to cut back.
Unpleasant to spend money with cash, which can help train your brain to reduce spending.
Cash is a quick and easy way to pay: Using cash eliminates the need for banks, credit cards, or other forms of payment.
Verdict: Paying with cash is the best method for budgeting and saving.
Overall, cash is a great payment type when it comes to budgeting. You can immediately see how much money you’ve spent and what needs to be cut back.
You can’t make impulsive buying decisions with debit cards or credit cards.
With a finite amount you can spend, cash is an excellent choice to prevent overspending. According to research, paying with cash can feel unpleasant, which can train your brain to reduce spending as much as possible.
2. Credit cards
Credit cards offer a number of benefits, including convenience, cash back, and the ability to make large purchases or pay bills in case of emergency. However, credit cards also come with credit card debt and can lead to overspending and financial problems if not used carefully.
For many, credit cards are the easiest way to blow your budget because you don’t have control over how much money you spend.
It is possible to overspend with credit cards if you are not mindful of what you charge.
On the flip side, this is a preferred method as many credit cards also offer rewards programs that give you cash back or points for purchases. If you make the conscious decision to use credit cards, you must make payments on time to avoid penalties.
Benefits of Credit Cards
Credit cards are convenient: Convenient to use and don’t have to worry about losing cash.
Use a credit card if you are disciplined and have strict spending habits: If you are disciplined and have strict spending habits, then using a credit card can work well for budgeting purposes.
Flexibility on larger purchases: Some benefits that come with having a credit card include more cash flow as well as being able to make larger purchases.
Credit cards provide support in times of crisis: Many credit cards offer extended services that can help like 24-hour fraud protection, lost wallet services, traveler’s insurance, and many other benefits – check each issuer for details.
$0 Liability on Unauthorized charges: Your credit card company will not be held responsible for any charges that were not authorized by you. This means that if you did not authorize a charge in person, online, or otherwise, you will not be responsible for it.
Fraud protection: Check your credit card issuer, but many offer fraud protection.
New card introductory APR is helpful to pay down debt: The introductory APR for the new card may not last long.
Payments on balance transfer should be manageable: Make sure that the payments on your balance transfer are manageable.
Points: You can accrue points along with your spending which can be a great perk.
Credit card interest rates are significantly lower than payday loans: Interest rates on credit cards are usually much lower than payday loans.
Due Date is After your statement closes. Since your bill cycle is at least another 21 days between the closing date for your statement and the due date, it gives you flexibility. Personally, I still account for the credit card bill in the same month that it was accrued.
Cons of Credit Cards
Potential for credit card debt: When using a credit card, be aware of your credit limit and the interest rate that you will have to pay on your debt. Also one of the categories of debt.
Credit limit often leads people to spend money: The credit limit often leads people to spend money by giving them a false sense of security, when they should stick to a budget and pay attention to their credit card statement and the billing cycle.
Credit card overspending can lead to debt: Consider the purchase if it is essential or delay it if possible.
Ability to easily purchase something you cannot afford. Buying something that you don’t have the money saved up for will cost you interest fees associated and maybe even with a credit card balance transfer.
There are a number of fees associated with a balance transfer: Transfer fee, interest on new purchases charged to the card.
Your introductory APR may not be valid if you make too many payments late: If you fall more than 60 days behind on payments your introductory APR might be canceled and you may face higher interest rates.
Credit score can suffer from debt: When you carry a credit card balance or don’t pay your monthly bills on time, you will lower your credit score.
Avoid carrying a balance: Pay your statement in full each month to avoid paying interest and maximize your grace period.
Key Takeaways on Credit Cards
Make sure to pay attention to the dates: Don’t spend more than you can afford, and make sure you’re making your minimum monthly payments on time so that your debt doesn’t increase over time.
A credit card can be used for budgeting only if you’re very disciplined: If you know that overspending is NOT an issue and you pay the credit card’s monthly balance in full, then using a credit card is fine.
Credit card transactions usually take several days to register in the feedback system: Something to look out for!
You can step back into debit cards or cash if needed: If credit cards are not for you, there are other options available such as debit cards or cash
3. Debit cards
Debit cards are a good option if you want to stick to a budget because the predetermined amount of funds can help you stay within your means. Additionally, debit cards are more convenient than cash and just as accepted as credit cards in most places.
A debit card works more similarly to cash than to credit cards.
They provide an easier way to track your spending and avoid having to carry a lot of cash.
Pros of Debit Cards:
No Need to Carry Cash: A debit card is better than cash because you don’t have to carry a lot of paper money and change around, and they’re also safer.
Debit cards are faster and easier to use: Debit cards work just like credit cards – withdrawing cash, making purchases, and paying bills – but they are linked directly to your bank account, so there is no need to carry around a separate cash envelope wallet or purse for them.
A debit card is a good option if you want to stick to a budget: Debit cards come with a predetermined amount of funds that you can spend from your bank account just like cash.
Tracking payments is easy with debit cards: Your debit payments will appear on your issuer’s dashboard, which you can monitor anytime from any location.
Convenience: Debit cards are more convenient to use and faster than needing to write a check or carry around cash. Plus they don’t add to your debt.
Shopping online is easy. You can use your debit card to make online purchases with your bank account, and digital banking tools make tracking your spending easy.
Points: Some debit cardholders can earn points for spending on their cards, which can be redeemable for rewards such as cash back or gift cards. This is new to compete with credit cards.
Fraud protection is typically offered for free with most debit cards—meaning if your card is stolen or used without your permission, you can get your money back.
No impact on your credit report. When you use a debit card, the funds are actually withdrawn from checking or savings accounts so there is no credit reporting occurring.
Cons of Debit Cards:
An overdraft on a debit card can happen when a purchase exceeds the amount of money in the checking account, leading to overdraft fees.
Funds on hold with fraudulent charges. If your account gets hacked, your losses will be limited since most banks protect their users against fraudulent charges and online purchases with their accounts. However, those funds will be held while they investigate and you may be liable for $50.
No chance to improve your credit score. Since you are not borrowing money, you are unable to improve your credit score.
Debit cards are a great way to keep your spending within your budget and avoid overspending which can lead to many detrimental issues.
Regardless of the overdraft fee, debit cards are still better than cash because they’re safer and easier to carry around.
4. Checks
Checks… do people still write checks? Why yes they do!
Checks offer a few benefits as a payment method, even though they are slowly being replaced by more modern options.
This can help you keep track of your spending and make sure you do not overspend. Additionally, if you ever need to dispute a charge, having a check can be helpful in proving what you paid for.
What is a check?
A check is a written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer from the check writer’s account. The date is usually written in month/day/year format. The signature of the check writer is usually on the line below “Pay to the order of.”
There are three main types of checks:
A cashier’s check is a check guaranteed by a bank, drawn on the bank’s own funds, and signed by a cashier.
A certified check is a personal check for which the bank has verified that there are sufficient funds to cover the payment.
A personal check is one that you write yourself and that is not guaranteed by the bank.
Pros of Checks
Checks are still a payment option: Checks are one of the traditional payment methods, but it is slowly dying out because of modernization.
Physical written record. It can be helpful to have physical copies of checks in addition to digital records through the bank.
You need to make both digital and physical copies of the check: Save check stubs but also transfer the information to a budgeting system.
Cons of Checks
Saving check stubs is helpful, but you still need to transfer the information to a budgeting system: Useful for tracking spending, but you’ll likely want more detailed records than just check stubs.
Not as convenient as credit or debit cards.
5. Apple Pay or Apple Cash
Apple Pay is easy to use and convenient since you only need to connect your smartphone to your cards and bank accounts via the app.
It is easy to use since you just hold your phone up to the reader and wait for the payment screen to appear.
You can even get cash back with apple pay.
Pros of Apple Pay:
Apple Pay is easy to use and convenient: You only need to connect your iPhone to your cards and bank accounts via the app.
You don’t need to carry any extra cards or cash: No need for additional cards or cash when you’re out and about
You can use Apple Pay on different devices: You can use Apple Pay on your iPhone, iPad, and Mac.
Transactions are secure: Your transactions are secured with Touch ID or a passcode.
Set up Spending Limits for each user. This way you can make sure you (or others with authorized access) are not spending more than you intended. Learn how.
Protection of Data during transactions. Your actual credit card number is changed to a different digital number, which allows limits your card number’s exposure.
Cons of Apple Pay:
Not widely accepted (yet). This method of payment is 100 percent guaranteed. While many stores offer apple pay, not all do quite yet.
The same rules apply if you load apple pay with a debit or credit card drawbacks include late fees, interest rates, and overspending: Keep that in mind when choosing Apple Pay as your payment method.
6. Mobile wallets like Google Pay, Samsung Pay, Venmo, or Zelle
Mobile wallets are digital payment systems that allow you to pay for items with your smartphone. Many people find mobile wallets are very convenient and becoming a traditional method of payment (such as credit cards).
With mobile wallets, you are making digital payments without having to carry around cash or cards using just your smartphone.
Mobile wallets are easy to use and provide instant payment convenience, making them perfect for shopping online.
Pros of Mobile Wallets:
Mobile wallets use credit cards and debit cards: Connect your smartphone to your bank accounts and use it for digital payments.
Mobile wallets are easy to use and convenient: Instant payment convenience makes them perfect for shopping online as well.
No need for cash or cards: No need for cash or cards.
Strong secuirity features provide privacy and security features that ensure your personal information is safe from data breaches and unwanted charges.
You can make purchases without having to show your identification: You can make purchases without having to show your identification.
Additional Layer of Security. Additionally, mobile wallet data is protected with verification, such as fingerprints.
Cons of Mobile Wallets:
With Zelle and Venmo, it is easy to send money to the wrong person or add an extra zero and send more money from planned. More often than not, it is difficult to recover your money.
You need to be disciplined when using a mobile wallet: Pay attention to late fees and interest rates, as well as the amount you spend in a month.
7. Prepaid Cards or Gift Cards
A prepaid card or a gift card could be right for you. The advantage of these is the mere fact that you reached the limit is enough to deter overspending.
It can make you think twice about whether you need to purchase an item or not.
Pros of Prepaid Cards and Gift Cards
Easy to use: Prepaid and gift cards are easy to use and manage your finances with.
The mere fact that you reached the limit is enough to deter overspending: It can make you think twice about whether you need to purchase an item or not.
No strings attached: No need to worry about any fees associated with the prepaid card once activated.
Privacy: The prepaid card does not track your spending or use any personally identifiable information.
Credit Score Doesn’t Matter: Your credit score does not matter when obtaining a prepaid card.
Cons of Prepaid Cards or Gift Cards
Losing a prepaid card is not a fun experience. Contact the prepaid card issuer right away to protect the funds on the prepaid card.
Fraud protection: Consider whether your prepaid card issuer offers any theft or fraud protection, as not all providers offer this feature.
Prepaid cards have limits on how much money you can load onto them, which can be frustrating if you need to make a large purchase.
8. PayPal
PayPal is a very convenient way to pay for items online or in person. It is widely accepted and used by many people.
PayPal is a digital payment service that offers convenience and ease of use. You can use them to send money to people or pay for online purchases.
However, because these services can only be used online, they should not be relied on as your sole method of budgeting and tracking expenses. Instead, consider Paypal in combination with another budgeting tool, like a spreadsheet or app, to get a fuller picture of your spending.
Pros of PayPal:
PayPal is one of the most popular online payment methods: Widely accepted and used by many people.
You can use them to send money to people or pay for online purchases: Help you review your spending prior to purchase.
Cons of Paypal:
EasyTarget for phishing scams. A phishing scam is when someone tries to trick you into giving them your personal information, like your password or credit card number. They might do this by sending you an email that looks like it’s from PayPal, but it’s not. Or they might create a fake website that looks like PayPal. If you enter your information on these sites, the scammers can then use your account to make purchases or send money to themselves.
Reputation for poor customer service. This is evident in their customer service ratings, which are some of the lowest in the industry. The majority of complaints against PayPal revolve around poor service received when asking for assistance with fund freezes and account holds.
9. Cryptocurrency (ie: Bitcoin)
Cryptocurrencies offer a new and innovative way of handling payments. They’re not yet widely accepted, so there’s potential for businesses to get in on the ground floor with this new technology.
However, because cryptocurrencies are so new, it’s uncertain if they will be regulated or not. This could pose a challenge for businesses down the road.
Pros of Crypto
Not subject to the same regulations as traditional currency, which makes them appealing to those who want to avoid government intervention.
The valuation of Crypto changes rapidly. If you are smart with crtyple this is a great way to spend your crypto coins.
Cons of Crypto
Cryptocurrencies are not accepted everywhere: Cryptocurrencies are not accepted by most organizations yet, which it makes it difficult to use them in day-to-day life.
It’s unclear if cryptocurrencies will be regulated: It’s uncertain if cryptocurrencies will be strictly regulated or not. This poses a challenge for those who want to use them as a payment method.
Bitcoin and other cryptocurrencies are still in their infancy: Bitcoin and other cryptocurrencies have only been around for a few years, so they may still face challenges in the future.
Here are the most popular budget apps today:
Other Payment Methods:
ACH payments
ACH Payments is an excellent way to pay bills and other financial obligations: You can easily set up a billing cycle for recurring payments, making it safe and convenient.
Fewer people are aware of your transactions when using ACH payments, reducing the chances of fraud or theft.
Key Facts:
Fewer people know about your transactions when using ACH payments, reducing the chances of fraud or theft.
Your checking account information is not shared or accessed by the system in any way.
You can quickly pay bills and other expenses with ACH payment: Financial institutions offer this as part of their deals.
When setting up recurring bills with ACH payment, you are aying your bills on time is important for maintaining a good credit score.
Pay attention to your check account balances: Make sure you have enough funds in your check account to avoid paying overdraft fees.
Money orders
A money order is a document that orders the payment of a specified amount of money. Money orders are convenient because they can be bought at many locations, including post offices, banks, and convenience stores.
To get a money order, you will need to fill out a form with the payee’s name, the amount of the payment, and your contact information. You will then need to purchase the money order with cash or a debit card.
To cash a money order, you will need to take it to a bank or post office. You will need to show identification and sign the back of the money order. The teller will then give you the cash for the payment.
More secure than cash: Money orders are more secure than cash because they don’t require a bank to make the transaction.
Less convenient: money orders are less convenient because you must purchase them in person.
Able to trace. They are also more secure than cash because they can be traced if lost or stolen.
Wire Transfers
Wire transfers are a more secure way to transfer money than traditional methods like checks and cash. These are sent through the banking system and are usually processed within two business days.
Typically, wire transfers are used when sending and receiving large sums of money (over $10000).
More secure than cash: Wire transfers are more secure than cash as the bank verifies there is enough money to make the wire transfer.
Fees involved with using a wire transfer. Most institutions charge for handling a wire transfer.
What method of payment is best?
Cash is the most widely accepted form of payment, but debit and credit cards are very popular.
The payment method that is best for you depends on which one helps you to stick to your budget and spend less money. The goal is to be financially stable.
What method is best for sticking to a budget?
There are several different types of budgeting methods that people use in order to manage their finances. Many people focus on using the 50/30/20 method, in which each percent corresponds to a different category of expenses.
There are plenty of budgeting tools available today to make sure you stick to your budget.
You need to find what works best for you. At the end of the month, you want to spend less than you make. That is the winning combo!
1. Budgeting App
There are many budgeting tools available online, which can be helpful as it can be easier to track your progress and budget over time.
You can use various popular budgeting apps like Quicken, Qube Money, or Simplifi.
These apps can help you track your spending, set goals, and stay on track with your budget.
2. Paper and Pen or Simple Spreadsheet
Some people find that they prefer using a simple spreadsheet or paper budget. This may be due to personal preference or because they find it easier to understand and use.
Additionally, using a paper budget may help you stay more organized as you can physically see where your money is going.
Options to get you started include our own budgeting spreadsheets or using an automated system like Tiller.
3. Envelope budgeting method
The cash envelope system is a good way to stick to a budget because it is rigid and based on envelopes and cash. You can’t get more money until your cash payday. So, this system helps you track your spending and budget better.
However, using only cash can have drawbacks as having large amounts of cash on hand can be risky.
The envelope method gives you a sense of control over your spending and makes it more tedious to write down your transactions. If you find writing down your transactions tedious, the envelope method may be too much for you.
4. Know Your Budget Categories and Track expenses
Tracking expenses is essential to move ahead financially: Knowing what you have spent in each category will help you make better financial decisions.
Be specific with your budgeting categories. Don’t make it too complicated. Always remember to include household items, clothing, and groceries when tracking expenses.
5. Prioritize your Budget Plan
A budget can provide a realistic picture of your finances, help reduce stress related to money matters, and guide you toward achieving your goals.
Creating a budget can help ensure that you are able to meet your financial obligations and still have money left over for savings and other goals. A budget can also help you track your spending so that you can make adjustments if necessary.
Make a budget plan: This will help you stay on track and make sure that you are spending your money wisely.
You decide where to spend money: A budget helps you set future goals and achieve your financial goals.
Creating a budget can help reduce stress: If you tend to get stressed about money matters, creating a budget can give you peace of mind.
A budget has other benefits beyond financial ones: If you want to achieve something in life, creating a budget can help guide you in the right direction.
See where to cut back spending. You can also look at your past spending habits to see where you can cut back. Sometimes it may be necessary to save more in order to achieve long-term goals, like buying a house or having a wedding. Always be mindful of your budget when making payments and spending money.
It’s a three-step process that involves basic math: Making a budget is simple and requires only basic math skills.
Stay on track: Making a budget plan will help you stay organized and keep track of your expenses.
A budget plan will help you stay on track and make sure that you are using the best payment type for your budget.
Making a budget is an easy way to save money. By following a few simple steps, you can keep track of your expenses and make sure that you are spending your money wisely.
Which type of payment is best for sticking to a budget?
One of the main pros of using cash as a method of payment is that it is the most efficient way to keep track of your finances. This is because it is very easy to budget when you are only dealing with cash.
However, many people prefer debit or credit cards are the best type of payment. They are more convenient than cash and can help you keep track of your spending. However, if you have a bad credit history or a low credit score, credit cards may not be the best option for you.
Cash payments are the most efficient: Most convenient and easiest to keep track with cash envelopes.
Credit cards allow you to accrue points along with your spending: These are a great benefit and one that can be a perk if handled well as part of your budgeting process. As long as pay them off in full each month to avoid credit card debt, high-interest rates, and other negative consequences.
Debit cards are also a good option for sticking to a budget. They can be used like credit cards but with less risk of debt.
Cash-based payments are a newer option and are more reliable: May not have as many negative consequences as other payment methods such as credit cards or loans.
What Not to Use when you are Trying to Stick to a Budget
You need to steer clear of these types of payments if you want to be financially stable person.
Personal loans
Personal loans are a risky way to budget. However, if you need the money for an emergency or unexpected expense, a personal loan can be a lifesaver.
There are many risks to consider and other ways to lower your spending before resorting to a personal loan.
Loans can cause budgeting problems: Loans can mess up your budget and make it difficult to stick to spending plans.
Taking out a personal loan just for the sake of having money can disrupt your budgeting: Consumers often borrow money in order to pretend they’re doing better financially than they really are.
Borrowing money is usually not a good idea: When you borrow money, you may find that you cannot handle seeing low checking account balance, which can lead to deeper debt problems.
Payday Loans
Payday loans are a bad option for someone looking for a long-term solution. They are expensive, and there is a high chance that the person will not be able to pay back the loan.
The interest that is charged is also high, and it can add up quickly.
Write bullet points about what happens with a payday loan
Payday loans can trap people in a cycle of debt, as they are often unable to pay back the loan in full on the due date.
When someone takes out a payday loan, they are borrowing money from a lender in a short amount of time, usually two or three days.
Payday loans are often expensive, with interest rates that can be above 300%.
Debt Consolidation Loans
Debt consolidation can be a good way to manage your debt because it can result in a lower monthly payment and extended payments may impact your financial plan. You can use a debt consolidation calculator to estimate how much debt you can afford before taking out a consolidation loan.
Debt consolidation loans also provide convenience because they have lower interest rates than payday loans. However, be careful when consolidating your debt because it is possible to overspend and lose your introductory APR.
You may be able to pay off your debt with one monthly payment: A consolidation loan often results in a much lower monthly payment than all of your previous monthly payments combined.
Extended payments may impact your financial plan: Take a look at how these extended payments will impact your financial planning.
You can estimate how much debt you can comfortably afford: use this tool – Tally .
It is possible to overspend with debt consolidation: If you spend more money than you planned on your day-to-day expenses, this could increase your debt. Consider if the purchase is necessary or if it can be delayed.
You may lose your introductory APR: If you fall more than 60 days behind on payments, you will likely lose your introductory APR and may even trigger a penalty interest rate.
You need to be careful when transferring a balance: Transferring a balance can also forfeit your grace period and you’ll need to pay interest on new purchases charged to the new card.
What type of payment method is best for sticking to a budget?
There are a variety of payment methods available, and each has its own benefits and drawbacks. It’s important to choose the payment method that’s best suited for your business and budget.
A payment method that allows you to stick to a budget is the best option.
FAQs
There are three main types of payment methods: cash, debit cards, credit cards, and cash-based payments.
The envelope budgeting method is a simple way to create a budget. You will need envelopes and divide your money up into the different categories that you spend money on. You will then put the corresponding amount of money into each envelope. This method can be helpful if you have a hard time sticking to a budget.
The zero-based budgeting method is a more methodical way to create a budget. With this method, you track every penny that you earn and spend. This can help you to see where your money is going and make adjustments accordingly.
A debit card is a plastic card that is linked to a checking account. Customers can spend money by drawing on funds they have already deposited. An overdraft on a debit card can lead to overdraft fees, which have high-interest rates.
A credit card is a plastic card that allows customers to borrow money up to a certain limit in order to purchase items or withdraw cash. Using a credit card can help build credit or improve your credit score.
There are a few different ways to use a credit card. You can use it to check your balance and review your spending history, which can be helpful in staying accountable.
Credit cards also offer online tools which make the analysis of your spending easier which can be helpful in tracking your budget.
Finally, you can use a credit card to rebuild your credit score by using it responsibly and paying off the balance in full each month.
Which payment type can help you stick to a budget?
When it comes to choosing a payment type that will help you stick to a budget, there is no one-size-fits-all solution.
The best payment method for you will depend on your specific needs and preferences.
When you are creating a budget, it is important to consider which payment type will help you stay on budget. Different payment types work better for different people, so it is important to experiment and find the one that works best for you.
As I stated for me, I have learned how to use credit cards to maximize cash back. But, I learned how to budget with cash when first starting.
Please pay attention to your budget and how it changes over time, as different payment types may work better at different stages of your life.
Consequently, I hope that this guide has given you a better understanding of the different payment types available and helped you narrow down your options. There are a variety of payment types that can help you stick to a budget, so it’s important to research each one carefully.
I highly recommend using an app to track your expenses and know where you spend your money. By developing a budget and choosing the right payment type, you can stick to your financial goals.
Know someone else that needs this, too? Then, please share!!
Estimating your retirement expenses well in advance can help ensure retirement bliss is in your future.
January 27, 2023
How much progress are you making saving for retirement?
According to a Bankrate survey, 52 percent of American workers said they were behind on their retirement savings goals. Meanwhile, 20 percent said they didn’t know where their retirement plan stood.
If you’re worried about falling behind, you may be wondering, “How do I know how much money I will need in retirement?”
Estimating retirement expenses can help you find the answer. Even if you’re still decades away from retirement, you can make a retirement budget to hone in on a savings target.
“Creating a budget is important since most people have two income sources for retirement: Social Security and whatever they have saved,” says Derek Mazzarella, a financial advisor in Needham, Massachusetts. “Projecting how much you’ll spend is critically important to know if you have enough money saved and if it will last long enough.”
If you’re ready to dig into the numbers, use this plan to learn how to estimate your retirement expenses:
Use your current spending as a budgeting model
Data from the Bureau of Labor Statistics puts the average household spending for Americans aged 65 to 74 at $54,997 annually. Average annual spending drops to $41,849 for those 75 and older. While these types of figures can be helpful benchmarks, you can more accurately estimate your retirement expenses by calculating what you’re spending now.
When making a retirement budget, Mazzarella says it’s helpful to divvy up expenses into two categories: fixed and variable. Fixed expenses are those you pay every month, such as housing, utilities, groceries and debt payments. Variable expenses are costs that can fluctuate (think entertainment or medical costs).
Once you break down your current budget, you can start estimating retirement expenses by considering what costs may increase, decrease or disappear altogether when you retire, as well as those that will remain the same. Your budget for family expenses might shrink, for example, once your children are out of the house and financially independent.
On the other hand, you might see health care expenses increase as you get older. According to the Bureau of Labor Statistics, a person 65 years or older spends around $6,802 per year on healthcare, not including the cost of long-term care. Learning how to make a retirement budget that accounts for those expenses while you’re still young and healthy can keep you from coming up short later.
Be realistic about retirement income
Once you’re done estimating retirement expenses, think about the sources of your retirement income. The list might include your 401(k), IRA, an employer pension plan, Social Security or business income if you own a business or have a side hustle.
The Social Security Administration offers a calculator that can help you determine your estimated benefits and make a retirement budget. You can also use an online retirement income calculator to estimate how much income your savings will generate once you retire. From there, you can create a plan for drawing down assets from different savings vehicles.
“In many cases, simply taking a proportionate amount of income from each type of account you own gets the job done,” says Byron W. Ellis, CFP®.
Choose your term, lock in your rate, and watch your CD grow
Discover Bank, Member FDIC
Let’s say you hold 60 percent of your savings in an IRA and the remaining 40 percent in high-yield savings vehicles. Ellis says you could plan to follow that same 60/40 split for income as you make a retirement budget. Sixty percent of the income you need to meet your retirement expenses would come from your IRA, in this scenario, while the rest would come from those high-yield savings accounts.
Remember that with a traditional 401(k) or IRA, you’re generally required to begin making withdrawals once you reach age 70 1/2 if you attained that age prior to 12/31/2019 and age 72 after 12/31/2019. That can affect your yearly retirement income total.
“The amount required is based on how much is in the IRA and how old you are, so the larger the account balance and the older you get, the more you have to distribute,” Ellis says.
Consider your lifestyle goals and plan for emergencies
As you learn how to estimate your retirement expenses, consider what kind of lifestyle you plan to enjoy when you retire.
“It’s common for new retirees to spend more earlier on in retirement” since they tend to be the most active, says Mazzarella, the financial advisor. That can be especially true during the first two years of retirement.
Health care has already been mentioned as a budget buster, but spending more time traveling, taking up a new hobby or buying a vacation home should also be top-of-mind when determining how to estimate your retirement expenses.
While new experiences and adventures should be considered when estimating retirement expenses, you’ll also need to factor in unexpected expenses. Having an emergency fund of easily accessible cash can keep you from having to tap your retirement accounts to pay for something like a home repair or a medical bill. Mazzarella says to keep three to six months’ worth of expenses in emergency savings for retirement.
Time is on your side
Learning how to estimate your retirement expenses can help you figure out what you’ll need income-wise, but that will only get you so far. You still need to act to ensure you’re saving enough. Thanks to compound interest—when your interest starts earning interest of its own—the sooner you can start saving for retirement, the better.
If you’re not putting money into an employer-provided 401(k) plan or an IRA, make enrolling and setting up contributions your top priority. If you are enrolled in a company-provided plan, check your current contribution rate to see if you’re saving at least enough to get the company match.
Consider signing up for an automatic annual contribution rate increase if your plan offers that feature. Bumping up your savings by even 1 percent annually could make a significant difference in how much you’re able to save over the long run.
Finally, consider your various options when it comes to IRA accounts. For example, the Discover IRA CD offers guaranteed returns at fixed terms. The Discover IRA Savings Account allows for flexible contributions and withdrawals, and it provides a place for you to transfer your maturing IRA CD without locking in a fixed term. Keep in mind that there may be an IRS early withdrawal penalty depending on your plan type and the age at which you withdraw your funds. Consider consulting a tax advisor to discuss your specific situation.
Both of these accounts can help you add even more money to your retirement savings by locking in a competitive interest rate and allowing you to enjoy tax benefits along the way.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
Welcome to another Ask GFC! If you have a question that you want answered you can ask it here.If your questions get featured on GFC TV or the GFC Podcast, you are the lucky recipient of a copy of my best selling book, Soldier of Finance, and a $50 Amazon gift card.So what are you […]
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Youâve heard the expression countless times: Paying rent is like flushing money down the toilet. I get it. There are strong reasons for purchasing a home. Iâm a homeowner and can attest to the fact that it provides my family with more stability, knowing a landlord canât kick us out. Purchased at the right time
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If youâre looking for a place to live, you may be trying to decide whether itâs better to buy or rent. Renting does have its advantages: thereâs less upfront investment and you can move when your agreement or lease is up without having to sell. However, for most people, itâs a much better option to
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Who needs a vacation? You do! The average American has almost 10 unused vacation days sitting around, according to a recent Qualtrics survey. Why donât we take those days off that we earned? There are a variety of reasons, such as work deadlines, childcare issues, and, of course, moneyâ¦or lack thereof. Travel can get expensive, […]
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